The GBPJPY plunged by -0. 57% on Friday extending a 4-day of losses after a release of mixed economic data. The British economy remains in a contractionary route amidst soaring inflation and slow economic growth. The UK GDP data fell to 2.4% vs 4.4% previous reading, although it was not as bad as markets anticipated. The pair broke below a key support level at 165.25 level as bears extends targets towards the 159.80 level.
Housing data released on Thursday shows falling prices which reflects higher mortgage rates from interest rate hikes. RICS House Price Balance for October dropped to -2% from a previous reading of 30% and could get far worse should the BoE continues on a tightening path. The Japanese Yen maintained strength as BoJ keeps the intervention door open.
However, investors will be closely watching the Japanese GDP data and Industrial Production data next week Tuesday while the UK will also be releasing key data ranging from Employment data, Inflation data and Retail Sales during the week. The data will be key in guiding market direction amidst BoE’s projection of a 2-year recession period.
Monthly Chart Analysis
The GBPJPY surrendered major gains after bulls retracted from the 172.00 high, a 6-year high. A Bullish defence of gains above the 159.80 level could see a further rally to the upside towards the 172.00 and 175.00 psychological levels. The pair is trading above the 200-day and 50-day moving averages used as dynamic support and resistance.
However, a break below the 159.80 level could trigger, further selling pressure towards the 148.80 level coinciding with the 50-day moving average. The MACD indicator volume bars have greatly dropped, trading slightly above the 0.000 neutral level indicating markets could experience a breakout in the near term.
The ActivTrader Sentiment tool suggests that 66% of retail traders are bearish on the GBPJPY. The UK recession fears remain a major headwind for long-term bulls. The UK economy shrank by 0.2% in Q3 vs Q2 as GDP YoY falls to 2.4% from a previous 4.4 %. Investors continue to maintain a cautionary stance ahead of November 17 fiscal spending budget.
However, bullish bets remain anchored on policy divergence between the BoE and BoJ. The BoE raised rates to 4.00% at the last policy meeting while the Bank Of Japan maintains an ultraloose policy amid skyrocketing inflation. BoE Governor Bailey doubled down on further tightening in the following months. UK inflation print scheduled for release next week Friday will be a key driver for the pair in the near term.
Daily Chart Analysis
The GBPJPY extended plunge for the 4th-day straight breaking below the 165.25 level, a 4-week low. The near-term support coincides with a 50-day moving average and trading below that level could reinforce selling pressure in the near term. A near-term target is the 159.80 level as the bearish outlook weighs on the pair. The RSI indicator reading is below the 50.00 neutral level, and it indicates the pair has room to trade lower.
However, if bulls manage to reclaim the 165.25 level, the pair could rally towards the 168.80 level. A break above that near-term resistance, coinciding with a Bollinger Band baseline could cause a further rally towards the 172.00 level.